Apr 302008

After the failed decade of “aid development” the World Bank was very vocal about its distributional concerns and to shift from “growth promotion” to pro-poor growth. Nevertheless, the language shift is bigger than the underlying facts. The term “pro-poor growth” is essentially misleading
By Dr. Noor Fatima

In recent years, we are stuck on economic growth as a broader indicator of the macro economy with the growing obsession with quantifiable indicators of economic policy performance and we have also focused on what is measurable important rather making what is important measurable. Since 1960s economist and development professionals believed that development is all about the economic growth. What has been realized after five decades that for sure economic growth significant condition for development but no more solely reason of development.

The World Bank in 1997 backed away from pure free market dogmatism by emphasizing the “role of state” in its World Development Report. It was realized by the Bank that there is much beyond the economic liberalization i.e. health, education, gender issues, good governance, rule of law and sustainability etc, that is important for development and ideologically that was the end of “Washington Consensus” or at least it was not uncontested. Therefore, Development Strategy is suspected of having failed.

The beginning of rethinking development strategies started in 1980s WB and IMF commenced their Structural Adjustment Programs. Actually they were supposed to adjust the institutions, Financial, Governance and Civil Service, unfortunately their adjustment cost the social sector spending: education, health, social security etc. That is the reason Poverty Reduction Strategies are focusing social sector specifically now. A former World Bank Economist, William Easterly in his book “The Elusive Quest for Growth” has mentioned all those areas where aid, foreign investment and infrastructure, did not work and aid for development was just a futile exercise. After the failed decade of “aid development” the WB was very vocal for its distributional concerns and to shift from “growth promotion” to pro-poor growth. Nevertheless the language shift is bigger than the underlying facts. The term “pro-poor growth” is essentially misleading. It implies that income of poor should grow at least on average as the income of non-poor. It means inequality must be reduced to that extent. Alternatively growth should bring change in the Poor’s income.

Actually, issue is not whether growth is pro-poor but how pro-poor it is. The economist analysis has identified certain divergence of this definition. For instance pro-poor growth pre-supposes a growth-focused strategy. How much a given growth rate is pro or anti- poor is not addressed in this phrase. The other point is why just to focus on maximizing the income of poor is termed as pro-poor growth. By this measure it is not pro-poor growth but it is growth that is biased against the poor. In fact, increase in income can be attained by certain other policies measure where not necessary the economic growth or economic activity is required but still the poor household can maximize their income. Whereas this definition implies that pro-poor growth certainly requires economic growth and activity. Thirdly, it is considered implicitly, what matter is the total income for the poor, where as that is not the case, development is not solely economic out put as non-financial well being is also part of the development strategy and for that “distribution corrected” measures were also debated to tackle the growing inequalities, particularly in the countries like Asia and Latin America.

Despite all claims of development and being on target of Millennium Development Goals, not a single developing countries in this continent is on its track to achieve targets as pressing facts remains that 71 per cent of the people in this continent are without proper sanitation, 58 per cent are without access of safe water, 56 per cent undernourished and 43 per cent of the world total child mortality. Neither economic growth unquestionably contributed to reduce poverty in this continent, nor has income distribution has become more equitable. It has been the world wide phenomenon that distribution of income has been more and more unequal in the 20th century. Between 1960 and 1980, as per the UNDP report 1992, the countries with the richest 20 per cent of world population increased their GNP from 70 to 82  per cent and the countries with poorest 20 per cent of the world population saw their share fall from 2.3 per cent to 1.4 per cent.  Therefore, the redistribution factor was more emphasized by the WB and other donors as the top 20 per cent  received 30 times more than the poor, and their share was raised to 60 times more by the decade 1980s. That shows that income inequality was on rise and very conveniently the excuse of Neo-liberalism was given for this inequality. In the classic economic arguments, the redistribution rest on the “savings”, as a pedal of economic development. It implies that output depends on the stock of capital, that needs investment and investment depends on savings. Therefore a higher rate of savings required for higher of rate of investment and that allows the investment return in capital and enhanced capital attracts more capital and higher rate of capital allows savings and so on investment and what is implicit in this strategy that more income with poor mean more consumption as poor can’t save and more income with rich means more savings. Therefore unequal distribution of resources leads to the higher growth.

The difference with the neo-liberals is that they are not for the maximization of inequality but that maximum economic growth can be obtained from the redistribution of the income to be determined by the market. So they emphasized that it is government’s certain policies only which can make distribution of income more to poor from the rich. Though the argument that poverty should confronted through redistribution rather than growth was also not advocated by orthodox economists on the grounds that redistribution is unsustainable and it can reduce poverty initially only and could stay for limited time. Ultimately, it is the economic growth which can sustain the poverty reduction measures. Actually the question is not whether policy objective should be economic growth, without growth or through redistribution of resources  the question is whether economic policies should aim to maximize income, and  poverty reduction be seen as a by-product. Or alternatively the increase in the incomes of poorer households be focused and growth be considered as a by-product –means distributional effects should be integrated into the design of economic policies as a whole. Because it is not absolute income which matters, what matter most are the policies of increase in income of poor households through distribution correction. The increased poverty, inequality of income redistribution of resources of the Pakistan is deep rooted in the aid bestowed by international institutions like the World Bank and the IMF and inequitable structures of the global economic system continued their SA policies for the debt crisis in many of the poorest countries with the solution of ‘free market’ policies imposition, which locked developing countries into an unbalanced market paradigm and income inequality. But it failed to solve the problem. Therefore, to need is to rethink on the development strategies instead just focusing on rhetoric of ‘pro-poor growth”. We need to shift from top-down approach of the global policy, which only meant to promote the global growth and more income for rich countries and to achieve their commercial interest. We need polices such as targeting income-generation plans for more production to meet the domestic demands, agriculture modernization programs, modernizing the textile manufacturing, promotion of local investment and more progressive taxation-with the objective of how to make pro-poor growth so that the global economic system, sequentially, support such policies, treating growth only as a by-product, and not the poverty reduction as a by-product of economic growth.

Courtesy: The News, 28/4/2008

 Posted by at 8:11 pm

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